State Subsidizes Local Tech

If the state is ponying up lots of new money for tech, then why is the local tech jobs market growing so slowly?

In technology companies, and especially in biotech firms, investment capital doesn't translate immediately into lots of jobs. Still, is it a good thing that the local start-up economy seems to depend so heavily on public funding? Are government subsidies the right foundation for a technology-oriented economy? Or would being forced to hunt aggressively for private capital, a hunt that would require building bridges to other regions, make Pittsburgh better off in the long run? Generally, I think that full privatization would be better, and I'd rather see cooperative bridges built to regions outside the state. The exception might be this: A persuasive case might be made that private capital won't follow unless public capital is in place. If that's the case, then public funding might make sense. Generally, though, I suspect that this isn't true.

Moreover, are government subsidies for tech companies the best use of our tax dollars? I think that PA has more pressing spending priorities. Local development authorities may serve valuable incubating, screening, and seeding functions, but we can only see their real value -- and we can only see genuine competition in that market from private firms -- if we turn off the public tap.

UPDATE: Harold Miller critiques the business tax pieces of the Governor's budget.


13 Responses to "State Subsidizes Local Tech"

Anonymous said... 2/12/2006 10:16 AM

Pennsylvania has a fat budget for technology. " The Ben Franklin Technology Development Authority would receive $50.2 million, the same as last year." I don't know what they did for $50.2 million last year. It seems strange that many of the the bridges in Pennsylvania are structurally deficient (one chunk fell down on I-70) and the state has all this cash for technology. A little bridge work might make sense. The bridges are in need of billions in repairs. The state is trying to operate like Microsoft or Intel with a big tech R&D budget. Totally wacky! Companies invent stuff. It's called capitalism. Maybe for $5 million we can do virtual bridge collapses using a network environment and a super computer, then spend another $5 million designing new bridges that can't be funded because we are building a tunnel under the river for a half a billion dollars. The loonies are running the authorities.

Anonymous said... 2/12/2006 10:21 AM

Pennsylvania came up first doing a web search of structurally deficient. How high tech we are!

Anonymous said... 2/12/2006 10:46 AM

"Without additional dollars, Pennsylvania's bridges will continue to deteriorate, making a bad situation even worse," said Ron Geist, managing director of the Pennsylvania Highway Information Association (PHIA). "Unfortunately, Pennsylvania is staring at a bleak outlook concerning its future transportation funding and cannot remedy this situation unless a new influx of transportation dollars can be found."

What would Ben Franklin do?
"On pleasant days, Franklin would sit in his front yard with a model of a bridge designed by Thomas Paine to cross the Schuylkill River. Such a bridge was built shortly after his death. The aged Franklin became a spokesman for the nation’s commercial and economic development."

Christina said... 2/13/2006 1:57 AM

I'm very much in favor of public seed funding for tech companies, and publicly funded assistance for building bridges to outside funding. (I work in the local tech industry, so I certainly have a bias, but I think I'm reasonably well-informed.)

There's a bootstrap problem that's very difficult to overcome with full privatization. Venture capital firms in California, NYC, and Boston are reluctant to invest in Pittsburgh when they have plenty of nearer investment opportunities; and when they do invest here, they often wind up moving the companies mostly or entirely out of Pittsburgh. (See: Transarc/IBM, Lycos, Galt/Intuit, MediaSite/Sonic Foundry, BeFree, Eizel/Nokia, and on and on.)

We've had very few buyouts or IPO's that actually threw a lot of capital back into the Pittsburgh market. I think it's in the public interest to help grow the companies we have now in hopes that they'll help grow the next generation of startups.

Rustbelter said... 2/13/2006 10:55 AM

Public funding for tech companies simply won't work. There are capital markets that function for this sort of thing. If a company leaves Pittsburgh for Boston or California, it's not for a lack of capital. The steady players stay put.

Pittsburgh is a fairly solid base to operate from. Alcoa, Heinz, PPG, Mellon, PNC, USS and other companies do fine here. New tech companies should cluster around Pittsburgh International Airport. We have over a billion dollars invested into the airport and growth has been flat. State money went into the airport. It can support more commercial development. The old failed plan involved clustering new tech companies around or within the local colleges. All kinds of state money went into this too. Once the state grant money or other slush funding ran out, the companies relocated. The airport can't be relocated. It is a good location for new tech companies.
The airport, that's where the new money is. It will take 20-30 years to fully develop the Pittsburgh airport area. It will also take private capital.

Rustbelter said... 2/13/2006 11:14 AM

The state should stick with subsidizing the city of Pittsburgh and leave the business funding and money changing functions up to the Mellons and PNC's of the world. They have the people who know how to do this. If you are using the state to start a business, you might want to think about your options a little more.

Amos_thePokerCat said... 2/13/2006 10:43 PM

The airport?! Ya, right. That's why US Air split. All the opportunity.

According to Ben Franklin Technology Partners (BFTP) site:

In FY 05-06, the TIO will manage more than $80 million in annual appropriations and will be responsible for overseeing more than $3.2 billion in investments.

What happened to the missing $30M?

After 20 years of the BFTP, and $3.2B in investments, can anyone name just one company they helped start up? (Scouts honor, no looking up on the web site, that's cheating.)

What no names? For $3.2B one would expect dozens of well known highly publicized successes.

The definition of insanity is doing the same thing over and over and expecting different results. -- Franklin

How ironic.

Rustbelter said... 2/14/2006 8:03 AM

USAirways is still in Pittsburgh.
The Steelers flew into town on USAirways after the Super Bowl.

Amos_thePokerCat said... 2/15/2006 10:29 PM

OK, if you want to nitpick:

"No other US Airways market has suffered in recent years like Pittsburgh, once the airline's largest hub and major East-West connector.

As the airline struggled to survive through two bankruptcies, it stripped Pittsburgh of its hub status, eliminated more than 300 flights and shed more than 9,000 local employees, down to the 3,300 it has today."
- PG

US Air has 63% split from PIT.

Amos_thePokerCat said... 2/15/2006 10:33 PM

Or if you measure from 2001, 72.5% gone:

"But the old US Airways' problems continued to plague the Pittsburgh region, where the airline's work force has shrunk from about 12,000 to about 3,300 since 2001. ..." - PG

rustbelter said... 2/16/2006 9:41 AM

The airline business is a bad business to be in right now. Southwest was doing some marketing with the NFL and pretty much bailed out Pittsburgh International Airport by coming here. If I was running things, I would of had the team flying Southwest. It's Pittsburgh, so things work the way they don't.

rustbelter said... 2/16/2006 9:47 AM

Governor Ed Rendell presented a $265,000 grant to Eastern Financial Systems in Sharon, PA. In Dahntown Picksburgh, PNC is also getting in on the the free flowing state money. When the slots come in, everybody is going to get rich. A chicken in every pot.

rustbelter said... 2/16/2006 9:53 AM

I hope yinz guys all get jobs at the slots parlors.
Until then keep buying lottery tickets. Don't wash your Steelers jersey until after next season!

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